PCE, Yields, and the Tech Trade

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Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Mike Rees is going to say I shouldn't do this senior U.S economist RBC, but I got a good ADP number 14 minutes ago and so I look at the yield and we are 5.57 and a 30 year bond. Are you guys micro looking at yields coming off 18 lines of economic data here today? I mean you said it. There's a lot to digest, right? So you're going to have the employment data. We got the sneak peak this morning. We get the inflation data. We get the revisions to GDP. And we do get some of those other measures. I think that are important signs for AI investment. We do think that continues when you look at things like durable goods order. So a lot to unpack, but at the end of the day if everything is looking positive, I think you can expect that rates continue to move higher. I mean let's just set oil aside because the whips around every day based upon social media posts here, underlying inflation. How do you view that? Because it's there. It's sticky and I think it's definitely got the attention of the Federal Reserve. How do you think about underlying inflation? Yeah, we are concerned about it right now and the way we're thinking about it is kind of putting into three buckets and you have your services, which we're splitting out. You have the housing component, which we think the disinflation there is largely done for this year. Maybe you get a little help next year, but for the most part it's just going to move sideways and that's a big chunk of the bucket. Then you have core services ex housing and with the labor market doing as well as it has been, there's really little disinflation. So the wage component, what's contributing in terms of compensation there, unlikely to provide any help and when you look at what's left to provide that help in core goods, I'm concerned because when you think about the energy story, it's freight prices that are starting to look like they're moving higher and when you look back at 2020, they're comparable in terms of a year over year change and that's going to start to bleed through into the core goods space. All of this says, um, inflation's moving in the wrong direction. Yeah, so I mean, we'll see core PCE today on an annualized basis 3.3%. So that's not what the fed is looking for here. So on the other side of the equation, the labor market, I mean, seems pretty darn solid, right? Is there any cracks underneath the surface and we should be paying attention to? No, and we've been looking. We put a piece out last week and it's something I look at. Some of these measures that most people don't pay attention to, things like part-time work for economic reasons, aggregate hours. And when you look at those, there's, it's really hard to find any weakness. The aggregate hours really continues to grow that just shows a continued demand for labor. And when you look at things like part-time for economic reasons, again, suggesting hours aren't being caught, in fact, they're being expanded. And I think despite some of the headlines about recent grad struggling, at the end of the day, at a 4-1, it's hard to argue there's weakness in the labor market right now. Mike Reed, where this is we go into the economic, so Lex has had that for you in a moment. The privilege he has of working with Francis Donald. Pretty solid. Five days a week. It's, Tim, Mike's got to have patients. Yeah. summarized, is it Nathan Jansen who does your Canadian U.S. border? Are these reports in particularly PCE affected by tariffs? Yeah, they are. And so one of the things we're thinking about is, certainly on the Canadian side, how that's going to impact the Canadian economy. It's going to be more impactful there. You know, right now, based on the current environment, we do think it could reduce employment there up to about 90,000 jobs. What about here? Is it part of our inflation calculation? As far as the direct tariffs on Canada not so much, we think it's more about kind of a negotiating strategy between the two sides. But more broadly, we still have tariffs that are in place. And one thing we're concerned about is the rundown of the pre-tariff inventories that we saw last year. Okay. We still think you have about a quarter or two of inventory drawings. Inventory drawings. Very interesting. Mike Reed with this. We're going to come back to give you the best we can on the economic analysis here. Equities lift futures up 11 into the report. It's Bloomberg's surveillance. And the Fed's preferred inflation gauge is out. And it shows inflation heated up in August. The personal consumption expenditures price index rising 3/10 of a percent month over month as consumers paid more for many goods and services. Year over year, though, the PC and PC index up 3.4%. This is less than the 3.7% expected and less than the 3.7% we saw the prior month. Let's move to core PCE, which excludes volatile food and energy prices month over month, rising 2/10 of a percent. So less than the 3/10 expected and right in line with the prior month. Core PCE year over year also coming in a bit softer here. Up 3% versus estimates for 3.3%. The prior month was also a 3.3%. A wireless telephone services and airfares driving core inflation higher. Meantime consumer spending rebounding sharply in August up 9/10 of a percent in line with estimates. And a lot higher than the 2/10 of a percent rise we saw the prior month. Meantime personal incomes up a scant, 2/10 of a percent. So we were spending more than we were bringing in. So once again, a bit of a surprise here, a softer than expected read on PCE, PCE up 3% core that is year over year estimates were for 3.3%. So still guys well above the feds, 2% target, but a bit better than expected Tom and Paul. Alexis, thanks so much, Marcus. So the futures up 10/0 up 33, NASDAQ up half a percent as well. yields come in and they begin to come in as the people digest Alexis at report 10 year yield in three basis points, 5.20 percent. We're advanced. Mike Reed with this because Francis Donald will migrate to nominal GDP analysis. Like nobody major shout out to the economists who noted domestic nominal GDP. Mike, 6.1% GDP price index plus an upward revision on GDP annualized 2.2. I'm rocking 8% simplistic nominal GDP. That's banana republic. How do we bring that down successfully? I don't know if you can. I mean this is a big part of this is the AI story. And if the fed is in a hiking cycle, it's not going to stop the continued investment we see in AI. As we saw earlier, look the data for the consumer is concerning. You have spending outpacing incomes. You have inflation moving in the wrong direction. Yes, we got a weaker number than expected, but I think that's due to methodology. So looking ahead, this is just you have forces at play that aren't going to be resolved by a hiking cycle. You mentioned the spending here. I mean, personal income rose 0.2%. Personal spending rose 0.9%. That's not sustained. What can keep hitting my credit card every week for that stuff? Oh, and that's that's where we're really concerned. One of the measures I like in this report is the measure of of non-mortgage personal interest payments. And when you look at that as a share of disposable personal income, which is the same denominator as the saving rate, it's about 2.5%. So I'm curious to see what it is today. But when you think about what's ahead, if the vet continues to hike, that's gonna move higher. And the number that concerns me is 2.8%. If you take out the COVID recession, the past three recessions prior to that, when you've hit 2.8% of that non-mortgage personal interest payment, we've gone into recession. So that is to say, it's really something that's going to squeeze consumers. - Okay, repeat that again. That's so important. You said, "What is 2.8%?" - So it's the amount of interest consumers are paying in terms of non-mortgage payments. So things like credit card loans, auto loans, student loans, any personal loans. - All the other loans we have, and that's becoming elevated. - And it didn't shift lower when the Fed was cutting. And so if you continue to see consumers to your point, you use credit cards to spend, this is gonna continue to squeeze them. - Don't be a stranger. We're angry with this. Thank you so much. RBC, I'm sorry folks, RBC people. It's the Royal Bank of Canada and always will be. Mike Reed of RBC to give us perspective. Features up 30 now, they launch a NASDAQ up 4.10s of a percent of VIX comes in from that 16 level to 15.76, a little bit of dollar weakness here. Haven't seen that since Eric Winigrad was ages ago, studying Chinese history. I mean, I'm looking here 10 year yield in two basis points. I'm shocked the 30 year bond doesn't come in 5.56 as all sorts of good things. We have wonderful conversations today. You go from ex-Catner to Mike Reed. Now Eric Winigrad with his chief economist, Alliance, Bernstein, always with important perspective. I look at Eric where we are and your idea that inflation is sticky and not accelerating. I think to all our listeners, that's the key debate. Discuss that. - Yeah, look, when the Fed embarks on a tightening cycle, typically it's because inflation is going up. That's not really what we're seeing here. We're just seeing it not come down. And if you look at today's data, there's more of that in there, right? The PC index, the core PC index are running above the Fed's target, but they're gradually moving in the right direction. And so that's a different type of tightening cycle than many people are used to. They're not trying to slow the economy. They're not trying to crimp things down here. They're just trying to accelerate this process of inflation. - So what happens with the next to the second, the third, we had someone in earlier five rate increases. It's not linear. When do those rate increases click in to bring your inflation where it is down to something more acceptable? - So that's the classic challenge for central banking is that you can raise rates today and it doesn't move inflation tomorrow. It takes nine to 12 months. And that to me, particularly in an environment where you're trying to get inflation to move just a little bit quicker, is a recipe for a very gradual cycle. There's no urgency here, right? Inflation is not accelerating. They just need to get conditions or they believe they need to get conditions a little bit tighter to make it go a little faster. To me, that's a recipe for a constrained gradual cycle rather than a rapid aggressive one. U.S. second quarter GDP was revised up to 2.2% annualized compared with the second estimate of 1.5%. - Sure, Paul would say that's solid. - That is solid. So I mean, the economy is strong, but part of the cost of having a strong economy is having a certain amount of inflation. And some folks are coming in here saying, hey, the 10 year yielded five in a quarter, whatever it is, that's consistent with how this economy's growing. Is that fair? - So I guess I would look at it and say, yes, the economy is solid. And the way I think the Fed is thinking about this is the economy is solid enough to allow them to embark on a cycle to get inflation to come down a little faster. If the labor market were weak, if the economy were weak, they probably wouldn't be doing that. They'd figure the economy would bring inflation down on its own. - Okay. - As far as the 10 year yield, what's really interesting is, if you look not just at the last rate move, but go back to the last several rate moves, all of which were cuts by the way, right? This cycle is unusual because when the Fed was cutting rates, long bond yields were going up, and now that they've raised rates, long bond yields are still going up, right? So that tells us that this cycle isn't really about the Fed. - What is it about? - You know, that is a mystery. And I'm sure that you have lots of people who come in here to you. - Well, there's an elephant in the room called the debt and the deficit. - Sure, but that's been true for a very long time, and there's no particular reason to think it's accelerating. Well, during the entirety of this cycle, the answer to that is yes, and there is nothing that changed at the point when long bond yields started to go up. I strongly agree with you that that plays a role in this, but I don't think it's the only variable at play. Yes, we're running irresponsible fiscal policy to have a 6% of GDP budget deficit in an economy that is strong, or solid, or stable, or whatever you want to pick, doesn't make any sense. You combine that with policy volatility and unpredictability, right? You have tariffs on, tariffs off. You have oil prices up, you have oil prices down, geopolitics on, geopolitics off. The Treasury Department changing its issuance calendar, we're intervening in FX markets, all of those argue for higher risk premium as well. So when I look at where the long bond yield is, I don't think it's any one explanation. I think it's a smorgasbord of all these different variables that are combining to put it there. - Chairman Worsh is just absolutely adamant of getting that inflation number down to 2%. Based upon my two semesters of economics at Duke, I feel like I'm an expert. I don't see the real magic of 2%. Why, I mean, we're at 3% for PCE today that just got reported. Maybe that's where our economy is. I mean, we're re-shoring all this stuff, we're cutting immigration, so we've got some wage inflation out. I don't know, maybe that's the new number. - So the magic of 2%, and you're right, there's nothing magical about 2%, to the one that said pick 2%, they picked it 'cause it seemed like a reasonable number and because the New Zealand Central Bank picked 2% first, it's not like there was some deep mathematical analysis that concluded 2% was optimal. But now that you've picked it, that's the target and in order to retain, excuse me, their credibility, they feel like they need to adhere to that 2% target. I believe and have believed for a long time that in the grand scheme of things, they'll be satisfied if inflation runs between 2 and 2 and 1/2, as long as inflation expectations stay contained, precisely because there is no magic to 2%, right? What they're really looking for, what any central bank is really looking for is the idea that when households and when businesses make their plans, they don't think about inflation, right? And that's what they're targeting. And I suspect that for most people, the difference between 2% inflation and 2 and 1/4% inflation is a rounding error that they won't perceive in their daily life. But in order to get back to that point, the Fed believes that they need to reinforce their credibility and that's what they're doing by starting what, again, what I expect to be a limited tightening cycle, but by raising rates at this point. - Eric Winningman, thank you so much with Alliance Bernstein this morning about a Dartmouth with all of his good academics here and have back-to-back Mike Reed and Eric Winninggrad is what it's about. Stay with us more from Bloomberg Surveillance coming up after this. - This is the Bloomberg Tech Minute brought to you by Chachy PT. 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This is Joe, I've been saying for like three weeks, get Nordvik, get Nordvik. You can't get Nordvik. He's still recovering from the World Cup. He has Nordvik joins his exciting data with his wonderful work on foreign exchange, but it's really broadened out. Is Ford does foreign exchange tell us in Formos is the deepest system about fixed income about commodities right now? Things pretty clear that the epicenter of what has been happening over the last couple of weeks, couple of months really has been the fixed income market. And like we merged Exxon to data with the vendor earlier this year to get the equity coverage as a part of what we offer. And even the equity space, like all the questions fixed and collected now, like when is this dramatic rise going to stop right, when is equity is going to be okay again? So I think that epicenter is very clear. What do you dollar to break as a change agent, do you need CCDXYGLE194, does it need to finally break? So I think when this kind of really interesting environment where currency markets haven't really moved that much, except the Korean one that has been on this crazy AI trend, but I think what we're looking to in currency markets is we're going to get to a point where the fixed income markets are going to be at a kind of breaking point where we're going to have to have some kind of intervention, right? We can have 30 year yields continuing to go up, you know, every few months, 50 basis points not going to be sustainable. And we've seen it already in the US, right? Scott Besson came in and said we're going to try to stabilize with the buybacks. You discussed it earlier this morning, right, hasn't really had a huge impact so far, right? But eventually, we'll have to have some type of backstop from central bank balance sheet to other balance sheet to stop it, and that will be when the currencies react, right? Because that's when the market and COK, there's a liquidity that's coming in to stop the yield rising, and that's going to then move into the currencies. We're not there yet, but I think this year's a transition year where we'll get to that point. That's just looking at your notes here, and as you talk about the long end moving higher, you talk about a corporate bond deal that may be impacting the power amounts in the market. It was $52 billion worth of investment grade, high yield, bank loan, a lot of paper coming to the market. But I've never heard or seen anybody discussing whether a corporate bond deal could impact the broader treasury market. Now, I think it's when the markets are so unedged, as we're seeing right now, like the catalyst kind of broadens out, and even smaller things can actually kind of destabilize the market. So obviously, there's a lot of focus on the hyperscale issues, right, which is now starting to compete in the long end with the US treasury market as being like an equally important issue from the US treasury, right? It's something that a couple of years ago, if I've set that on, we, when we do the projections into 2007, it looks like the issuance above 10 year because the data center is a very long term financing projects. It could be of roughly the same magnitude as the treasury is. Yeah. If I come here and set this a couple of years ago, you probably kicked me out of the studio saying, okay, what are you smoking? So, but this bond sell off, it's been a global issue, it's not just the US, so what is that telling you? Yeah, so what we've seen in over the last couple of years, right, the global bond markets are so tied to the US that it's quite hard to see any decoupling. But I do think if you look at the curve shapes, you can see, like the most extreme example of Switzerland, right, where they have no debt, you don't have curve steepening there. So there are some differences, and I would also say if you look at this week, right, and even today, like which curves are steepening? The US curve is still steepening today. The French curve is still steepening today. So that does seem to be a trend where, okay, global bond yields are correlated, right? But the slope of the curve is more problematically steep in the places where the debt issues are the most severe. Gens Nordwig, with the Scythercostani, we're going to continue with them coming up. Lisa O'Bromo, it's with Ken Griffith, and on his very important day for Pittsburgh's Carnegie Mellon, as they look to Miami, I'll give you a treatment on there in a moment. We are advantaged to have Gens Nordwig with us with these headlines. Let me go through these bombshell headlines. BMW of Germany targets shedding a fifth of managers for AI. BMW targets three to five percent automaking return on sales two years out. BMW expects management cuts to be completed by summer of next year. BMW's management job cuts are part of an AI, by out whatever that means. BMW to add more high-end models above the X7. BMW to reduce variance to discontinue some models. I look at this again, and it just speaks of the impact of China. I mean, it just screams for Volkswagen, BMW, for Ford and Jim. Your thoughts on how China is pricing their goods? Yeah, absolutely. Like, a couple of decades ago, I was disconcerned that Japan was going to take over, right? And the Japanese automakers were gaining market share from everybody, including the US ones. And now we look at what's happening in China, right? And the speed at which China is taking market share globally is so much faster than Japan ever did. And obviously, the headlines you are reading out, right, is a reflection of that. Like German car producers are just really pressured. Number one, because they don't sell cars in China almost at all anymore. And number two, because they're also getting threatened at home from the EVs, yeah. So this is a very challenging situation for Germany. Like, the only offset they have really is that some of that production capacity is moving to military production, because Germany is ramping up their defense spending. That's the only offset. But we also have the much higher natural gas prices, so the challenges are multi-fold. Don't be stranger. Yes, Nordvik. Thank you so much for the exotic brilliant research note. I will say his book of a lifetime ago on the Euro was absolutely definitive. Eastern. On Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube. Let me explain Paul Sanky folks. For years, you'd get the Deutsche Bank Research and this is before the internet. It was chiseled in the granted, it's chiseled, excuse me, chiseled in Chicago, let's get into this right here. Chiseled in Sagrada. Chiseled in Sagrada. We used to get the paper research reports. We were sitting here with Paul Sanky, lead analyst at Sanky Research. He is the go-to voice on global energy. Paul, I've been reading over the last 24 or 48 hours. That a lot of crude is getting through this trade of hormones, like a lot of crude. Why is Brent still at $103? Why are we trading this stuff at $80 a barrel? Well, I think it's going to come down because yes, the numbers we're getting are actually 20 million barrels a day right now, the very latest. The US has absolutely thrown the military, the Air Force particularly into, for example, I was told they have eight F-15s constantly running up and down the petrol line to protect the petrol line, and the F-15s are apparently faster than the drones, so it makes you wonder about top gun and stuff, but what strikes me, obviously, is the enormous expense of this effort, and it's clearly an all-in military effort by the US to get the oil flowing, and that's succeeding. I think the problem is what happens once we get through the midterms, because it's clearly an unsustainably expensive effort right now, and what you're seeing, I was just looking at the charts, is actually year-forward crude is now moving up quite aggressively, so you're above 80 for one year delivery, so next year, next year, the price of oil has gone up quite a lot. Why is that? Again, with the supply. Because I think everything you're looking at now is pointing towards 20, 27 being a problem as well, because we've drawn down, we've run through the six or seven buffers that we had in Global Oil, which would be some of the less well-known ones, for example, that Saudi and UAE had major inventories in Asia already stored, and obvious one is the strategic petroleum reserve. Those are getting tight. There is another release of the strategic petroleum reserve coming through, but you've gone from one another. and a half million barrels a day are brought down some more like 150,000 barrels a day there, and that simply can't go on forever. So this is a short sort of sugar rush of crew that we're getting that isn't clearly, is clearly I don't think the US military effort can be sustained quite frankly at this level of expense. - When you get the oil out, then what do we do with it? We gotta refine it, right? - That's the second problem is that you're, I keep saying you're pushing on a string and you know the fact of the matter is the constraint is not crude, the constraint is diesel and we're getting almost no diesel out of the straights of warmers. The Q8 refinery used to supply 60% of Heathrow's jet fuel. You know, that's all now missing and you really have basically an energy crisis again in Europe that we're hoping won't be as bad as it might be because we're looking for a warm winter with El Nino, but I think we're also looking at a very volatile winter as you know, we just had a Norista here in September and that's not, that's very early, it's not unknown but it looks like we might have energy disruptions from force measure, from God himself or herself. - All right. Paul, thank you for this talk. Thank you, research, throw, he could be with us today. I should say in the plague that I'm getting over, now I have two people in the Bloomberg Money Team poll with it out today. - Yes, I shall. - It's there. Folks, if you've got this flu thing going around, it's pneumonia thing, go to the doctor, don't be a hero. I can't say enough the care I've gotten and we're working it in every day. Paul's saying I think Paul's dead on here and that the public is looking at simplistic politicians in their rhetoric. If you were talking to the politicians with their simplistic, you know, prime time news sound bites, what would you say to them that they need to understand? What's the come to Jesus moment the politicians need? - I think the free markets, you know, I think the idea that we would ban diesel exports in order to short-term bring the price down because the Russians banned diesel exports and the Chinese banned diesel exports. You know, that's one of the sort of comparisons that makes you realize what a terrible idea it is. It's like, no, you know, we got to this position of the world's biggest oil and gas producer and exporter an amazing position that's greatly underestimated by almost everybody in terms of the benefits that it's bought to the U.S. And then to turn around and start mucking around the margin in a way that, you know, you get a six, you get a, whatever it'd be, a 90-day benefit of low diesel prices and you get a 20-year discount for not being an investable, you know, place to put money in refining. - So then how do you perceive, say, next summer, a gallon of gas, or a gallon of diesel, or just a price of rent? - Well, one comparison that we're using regularly is if you're at $650 diesel, you're at $250 a barrel. I think that would help people realize what the issue is. You've got $100 crew, you've got $250 diesel and we use diesel. Everything that is out there is that because of what's happening in hormones and because it looks like it's structurally going to be very risky. What's happening here as well as the Iranians have no radar, so they're just randomly throwing missiles, hoping to hit a boat. You know, it's a very inefficient way to do it, thankfully. But it really tells you they're not stopping. You know, we're going to have to either continue massive military presence down there. Now, that military presence right now is causing massive spikes in tanker rates because the tankers, these state companies are using the state ships to get through the strait because they're prepared to risk and then they're putting it on commercial tankers outside the straits. That's adding $25 a barrel to the price of crew to get from Saudi to China. Last year, it was under $2 a barrel. So you have a structural transport increase. This week, Thomas, just on Monday, I was at the Total Energy's Analyst meeting here at Columbus Circle and a couple of things they did. One, I thought was brilliant, is that Total Energy's voluntarily put a cap on gasoline and diesel prices in France. So the company actually did it themselves and that would be a suggestion to me for a velero. You know, let's get 100,000, 200,000 barrels of price tapped diesel to the farmers and that will probably satisfy the politicians a lot. But broadly speaking, because of the enhanced risk, you actually need higher inventories arguably than you were holding before the crisis and inventories have been radically drawing down. So a couple of important numbers just to finish, you drew down four million barrels a day of global inventories suddenly in September. So the drawdown suddenly accelerated because we'd blown through the buffers that we talked about, things, and then, of course, you lost the petrol line, so the market got panicky and that's why we're at 100. But at the same time, actually, the US military effort was massively ramping up the crewed, which takes 50 days to reach this destination. So I think we're going to come off these level of crewed prices quite aggressively, assuming they maintain the 20 million barrels day of exports that they're achieving right now, apparently. But you're going to remain in a major issue for diesel because you're actually doing nothing to address the diesel problem. The other thing I'm watching Tom finally is finally is, finally, finally, is just whether or not treasury rates, interest rates disconnect from oil. Because as you know, for the past eight weeks, six weeks, we've had a one-on-one oil moves of percent. Those guys, you can just check, overlap the charts. I've just seen this week, the beginning of oil trading off, but the interest rates continuing to rise. And I think that's going to be very scary for the market if that starts, I think. - Get one more in here, Paul. - All right, here's the simplistic question of the day, because I'm sure 99% of our audience wants to just know this. When do we get back to normal? Do we ever get back to where we were January, December, in terms of global energy? And all the way from your world in the oil fields, all the way down to my pump, and Route 36 in the Jersey Shore? - Well, I tell you this, my standard line is, if you're worried about World War III, you shouldn't be because you're in it. And this is World War III, and there's a number of higher levels than the usual trench warfare in Ukraine. You have a situation here where you have an AI, World War. You have a finance world war. We call it OFAX against U-cabs, which is the US sanctions against drones. And that's just, you can split the world east-west, basically with a second front line through Tokyo and career in Taiwan and Australia. How do we resolve this? I really would love to see the Chinese get on the same page as us, but I think Wall Street always supported Trump taking on China. The execution at times has been suboptimal, we can say, but I think the general idea was that we have to make some sort of new industrial policy in the US and reduce the power of China over time. And that's hopefully something that can happen in the future. But at the moment, it's pretty intractable. It's pretty difficult to see how we normalize. It's certainly how we normalize ever again, the straight-up war moves, because it's a structural damage that we've-- Paul, thank you, thank you. Paul, thank you, folks, where is here? [MUSIC PLAYING] Stay with us, more from Bloomberg Surveillance coming up after this. This is the Bloomberg Tech Minute brought to you by Chachee PT. Now with Chachee PT work, I'm Carol Masser. For decades, India was home to millions of rickshaws. 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So usually we talk to her about economic and that. But Julie, your note is just incredibly prescient on AI. You've been going to the boring meetings of people trying to figure out data centers and all that. Here's George Noble, the giant of fidelity overseas this morning. This anthropic IPO is the most dangerous deal I've seen in my 45 year career. Julie, from your perspective, where are the mega people? Where is AI Sam Altman, Darius, played on Saturday night live this weekend? Where are they in six months or for that matter six years?" Oh my gosh, that is a big question. I think the real challenge that they have is that they're in this chasm in their business model where they really are just huge users of capital and they need that in order to continue their growth. We need the growth in order to continue to draw investors in. And I think that the problem that they have is that they've unleashed this technology and taken very little responsibility for a lot of the problems that it has. And I don't think that that's something that people are going to put up with. If my kid in preschool bit another kid, that's on me. I can't just pretend that that wasn't on me. And I think that that's the real struggles. We're looking for them to have some real accountability or else why should these models be as large as they are? George Noble, brilliantly, he quotes the American Canadian philosopher Wayne Gretzky. Okay. You got to skip to the puck. Julie knows this because he was an iconic at the LA Kings. As well. Now the puck is going to the customer, Mr. Noble says, and the customer is scared. Is there a customer out there, Julie, based on the meetings you've gone to at Morgan Stanley and other shops? I think there absolutely is a customer and I think that this technology has applications that are going to be really life-changing for all of us. The problem is is trying to predict it with any kind of certainty is to me really, really difficult. Think if you were an accountant when spreadsheets came out, you would be pretty worried about your job. But if you look forward, we've actually hired more accountants over time. So it's really difficult to know exactly what the implications of the technology are going to be. I like investing in companies that I think will be beneficiaries of it from a standpoint of they're going to integrate it and become more profitable on their own side, rather than saying, "I want to be in the picks and shovels because I just don't know what the duration is and how big it's going to really need to get." Julie, be over this right now with an active market, Dow up 26 points, Paul. I got to headline here, Italian bond risk. Is Dow up in a full stick, 100 beefs? Which Germany is just exploded out seven basis points to 125. If you don't know what that means, it doesn't matter. We'll say it in French later. But then Paul, the 30 year bond, we all understand that, rounded up 5.61%. Yep. I mean, Julie, Bill, can't move up to 6,000 square feet in the Hollywood, exactly. So Julie, how does higher interest rate environments, which Thomas is pointing out, just moving more and more on the high end here, what does that mean for stock investors? Very small and mid cap investors, it's got to be a headwind. I think if you're thinking about small cap as a group, in general, higher interest rates are harder because most of them are borrowing at the banks and so they're on variable rates. And a lot of them are highly levered. I think if you can avoid companies that have a lot of leverage, that's what you definitely want to be doing. But the reason why interest rates are going up is important too, right? If it's solely about inflation, that's not great. And if it's also about their strong economic growth and their strong labor markets, that tends to be actually better for small caps. You have to kind of take a more nuanced look at it. So how are we thinking about just an environment where this stock market has been driven by earnings? And the earnings that just been extraordinary over the last several quarters, what's the earnings growth story going forward from your perspective? I think going forward, we want to continue seeing a broadening of the growth in earnings, right? The numbers have been pretty eye-popping, but the problem is that it's concentrated in technology with a huge chunk of it being the re-evaluations of these private companies, right? Non-operating earnings, not actually selling more stuff, but non-operating earnings. And then what we're seeing in energy, and it's hard to know how long that improvement in earnings is going to last, we want to see more breadth into manufacturing and into other pockets of the economy in order to feel really, really confident that the growth is durable. Julie, thank you so much, have to run with breaking news, we just love, love, love your research. Julie, be with us, Chief Market Strategist, Cain Anderson, Rodinick. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, tune in, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal. If you listen to financial news, you know a lot of time to spend thinking about what's next. The next opportunity, the next investment, the next move. But sometimes what matters most is being ready for what you never saw coming. 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